A round-up of the changes announced in the Budget 2024 that affect payroll, pay and tax.
Umbrella companies
In her Budget 2024 speech, the Chancellor said: “We will clamp down on those umbrella companies who exploit workers, increase the interest rate on unpaid tax debt to ensure that people pay on time, and go after the promoters of tax avoidance schemes.”
Significantly, the chancellor unveiled a £1.4 billion investment for HMRC, for it to use to modernise its technology and hire an extra 5,000 compliance and debt staff, in a bid to tackle worker exploitation, tax avoidance, and people who fail to pay their taxes on time.
From April 2026, recruitment agencies will have to account for PAYE on payments made to workers via umbrella companies, while tax for Employee Ownership Trusts and Employee Benefit Trusts will change to ensure that tax benefits are used appropriately, and to prevent abuse.
The government will also increase collaboration to tackle rogue company directors, expand HMRC’s counter-fraud capability and strengthen the department’s informant reward scheme. Serious offshore non-compliance, including fraud by wealthy customers and intermediaries, will also come under closer scrutiny as a result of the investment.
Employers NI Contributions
A significant part of the £40 billion hike in taxes announced in the Budget, is an estimated £25 billion that will come from an increase in Employer National Insurance Contributions (NICs).
Employer NICs will increase by 1.2 percent from 13.8 percent to 15 percent from April 2025, and the secondary threshold – where employers start paying national insurance on an employee’s salary – will be lowered to £5,000 per year from the current £9,100.
The Chancellor also announced that the employment allowance will increase from £5,000 to £10,500, which is likely to give small businesses and employers a saving; she explained that 865,000 employers won’t pay any national insurance at all in 2025, and that over 1 million will pay the same or less than they did previously.
However, the move is expected to lead to a decrease in hiring and significantly impact living standards, with many workers actually taking home less pay, and any pay rises likely to be significantly smaller in order for employers to manage the rise.
Living Wage
As part of a broader push towards higher wages as the government seeks to unify the National Living Wage and National Minimum Wage into a single adult wage rate, the Chancellor announced a 6.7 percent increase to the National Living Wage.
The increase means hourly rates will rise from £11.44 to £12.21 per hour starting April 2025, equivalent to an additional £1,400 annually for a full-time worker.
For younger workers aged 18 to 20, the increase will be even more significant, with the National Minimum Wage rising by £1.40 to £10.00 per hour. This adjustment will add approximately £2,500 to the annual earnings of a full-time worker in this age group.
Official rate of interest from 6 April 2025
The official rate of interest (ORI) is used to calculate the Income Tax charge on the benefit of employment-related loans and the taxable benefit of some employment related living accommodation.
In the Budget, the government announced that the previous public commitment made in January 2000 to not increase the rate during the tax year, will no longer be applicable. As of 6 April 2025, the ORI may increase, decrease, or be maintained throughout the year.
The rate will continue to be reviewed on a quarterly basis. Any changes in the rate will occur following a quarterly review, where appropriate. If there are any in-year changes to the rate, these will take effect on 6 July, 6 October and 6 January. Any future changes to the rate will be published online at beneficial loan arrangements — HMRC official rates.
This change is said to increase fairness across the tax system by enabling the ORI to increase in-year where appropriate, ensuring employment-related beneficial loans and living accommodation are correctly valued.
Benefits
The government announced some updates to the January 2024 proposals to mandate the reporting of benefits in kind through payroll software from April 2026.
According to information on the Gov.uk website, the main adjustments are:
- Mandatory reporting of benefits in kind (BiKs) in real time, through payroll software, will be introduced in a phased approach from April 2026 — employers will be required to payroll most benefits from April 2026, but will not be required to payroll loans and accommodation at that time.
- Employers will be able to report employment related loans and accommodation through payroll software on a voluntary basis from April 2026 — a modified P11D and P11D(b) will be available to report just loans and accommodation if employers do not wish to payroll these.
- No decision has been made as to when the government will mandate the reporting of loans and accommodation through payroll software; Gov.uk says the government will give ‘careful consideration to make sure sufficient notice of any change will be provided’.
- An end of year process will be introduced to amend the taxable values of any BiKs that cannot be determined during the tax year, however, the government says it expects the taxable values of most BiKs to be reported as accurately as possible during the tax year.
- The requirement to submit P46 (Car) forms will be removed as functionality will be provided to report the data required through payroll software in real time
